Taiwan’s Kuomintang in crisis as ‘ill-gotten gains’ law threatens to reverse party’s fortune

It was once known as one of the world’s richest political parties but now the Kuomintang is facing a financial challenge that has left it unable to pay staff.

As the KMT fled to Taiwan after losing the civil war to the communists in 1949, it reportedly took millions in gold, bonds and antiques that became part of the foundations of the party’s fortunes. Once it arrived, it also ­absorbed assets nationalised by the Japanese during the 50 years of colonial rule of the island.

It used those foundations to establish a party that held an ­unbroken grip on power until 2000. Those fortunes have waned over the decades but they could be wiped out completely with the passage of a law on “ill-gotten political party assets” in July.

The KMT insists the legislation is a “political witch-hunt” by the ruling Democratic Progressive Party designed to strip the KMT of its ­assets. The DPP, however, maintains the law is necessary to level the electoral playing field for political ­parties.

Meanwhile, analysts say the KMT faces an even greater ­existential threat than a lack of money – a failure to cultivate its next generation of politicians.

When the KMT fled to Taiwan, it did not go empty-handed. Among the haul was an estimated 138 tonnes of gold, some of the greatest treasures of Beijing’s Forbidden City, and US$24 million in bonds. It also inherited assets nationalised by the Japanese.

The effect was to blur the financial lines between the party and the government.

Some of these assets were ­redistributed to the public and used for the running of the island but, according to some local ­media reports, some were transferred by the KMT government to the KMT party, which used the funds to buy land and invest.

Under the new “ill-gotten ­assets” law passed by the DPP-dominated legislature, these ­assets would have to be handed back over to the state.

The law requires political parties formed before July 15, 1987 – when the island lifted martial law – to return all property obtained after 1945 to the government. The only exceptions to the legislation are party membership fees, political donations, government subsidies and interest derived from such funds. Parties must freeze all such assets and submit documentary proof of provenance to a Cabinet committee, which would determine if the property should be surrendered.

For the KMT, this has meant freezing its roughly NT$16 billion (HK$4 billion) in assets, leaving it without adequate funds to pay the salaries of its 800 staff.

“It’s simply a political witch-hunt. The law was instituted to destroy the KMT so that the DPP would remain the uncontested party in Taiwan,” KMT chairwoman Hung Hsiu-chu said.

Analysts said the law clearly targeted the KMT because all other political parties were officially illegal under martial law and only allowed to register after January 1989.

The KMT is planning to apply for a judicial review to determine if the law violates the island’s constitution but a decision could be years away.

Wu Yen-te, associate professor of law at Chinese Culture University in Taipei, said there was a question mark over whether the Cabinet committee could use the law to seize such assets. “The term ‘ill-gotten’ does not necessarily mean illegal,” Wu said. “[The law] will lead to constitutional ­disputes and lawsuits over ­whether transactions legally established in the past are overridden by the special bill.”

KMT spokesman Chou Chih-wei said the issue was tied to the island’s post-war development and the DPP should not target the KMT without considering its role during that time.

“The bill presupposes that the KMT obtained all its assets illegally during the said period, which reverses the legal concept of presumed innocence until proven guilty,” Chou said.

But Wellington Koo, a former DPP legislator and head of the Cabinet committee assessing the assets, said the KMT was ­unrepentant and still hoped to use its “ill-gotten assets” for future political campaigns. Koo said he would dedicate the next few years to identifying and recovering the property.

New Party chairman Yok Mu-ming took aim at the DPP for wanting to claim property for the island that belonged to the mainland. But he also urged the KMT to divest itself of the property. “Don’t be afraid of having no money. We have been a poor party for 23 years and have still survived,” Yok said.

KMT vice-chairman Steve Chan said losing the assets could allow the party to restructure.

“As long as the party keeps the assets, no one will donate funds to the KMT,”Chan said.

However, the KMT faces an even bigger problem, according to political commentator Lee Yen-chiu.

“The KMT traditionally relies on a saviour to save the party, but … it has no more rising stars,” Lee said. “Its inability to train a young generation as future successors has resulted in a serious succession problem within the KMT.”